Part 3 · Income statement: a year's report card · Lesson 16
EPS and P/E: What one share earns
To judge whether a stock is expensive or cheap, you first need to know what one share earns. It starts from the bottom line of the income statement, earnings per share.
QToday's question
A stock priced at KRW 9,000 and a stock priced at KRW 90,000: which one is more expensive?
A high share price feels like an expensive stock. But whether you cut a pizza into 8 slices or 80, the pizza is the same size. The price of one share alone cannot tell you whether the stock is expensive. In this lesson you work out what one share actually earns (EPS) and how many times the market is paying for that profit (P/E), calculating both directly from the financial statements.
MAPLearning map for this lesson
We build it up in three steps. At the end of each step, a 'Quick check' lets you test your understanding before moving on.
In Economics Lesson 1 you learned the formula share price = earnings (EPS) × multiple (P/E), and in Economics Lesson 37 how to measure expensive vs cheap with P/E and P/B. In Lesson 1 of this course you only calculated Robin Bakery's EPS of KRW 600 and P/E of 15x, and in Lesson 11 you saw that EPS uses the share of profit belonging to the parent's owners, not total consolidated net income. For treasury stock, recall Lesson 9, and for the steps that build net income, Lesson 15.
- STEP 1 · Basic conceptWhat one share earns: EPS
Calculate from net income and the number of shares, and explain why the share price alone cannot tell you whether a stock is expensive.
- STEP 2 · Understanding the mechanicsThe denominator of EPS, and P/E
Understand how the , , and share cancellations change EPS, and distinguish trailing from forward PER.
- STEP 3 · Applying itFinding EPS in DART and reading P/E
Find earnings per share in the income statement and notes of an annual report, and write down the three questions to ask when reading a P/E.
STEP 1What one share earns: EPS
At the bottom of the income statement's staircase you find net income. But investors care less about the whole company than about the portion belonging to the single share they hold. It starts with dividing net income by the number of shares.
EPS is net income divided by the number of shares
(Earnings Per Share) converts the net income a company earned over one year into an amount per share. The fictional Robin Bakery earned net income of KRW 1.2 billion and has 2 million shares, so EPS is KRW 1.2 billion ÷ 2 million shares = KRW 600. This means a person holding one share of the company had KRW 600 of profit attributable to them over the year. They do not receive all of that KRW 600 as dividends. Robin Bakery (fictional) pays KRW 150 per share of it as a dividend and keeps the rest in the company as retained earnings to reuse.
Think of it as pizza: net income is the size of the whole pizza, and the number of shares is how many slices it is cut into. Cut into 8 slices, each slice is big; cut into 80, each is small. So even if net income grows, if the number of slices grows faster, the share of one slice (EPS) can actually fall.
You can't tell if it is expensive from the share price alone
Let's return to today's question. There is Robin Bakery with a share price of KRW 9,000 and a fictional company A with a share price of KRW 90,000. If A's EPS is KRW 9,000, the multiple of one year's profit that one share is priced at is 10x for A (90,000 ÷ 9,000) and 15x for Robin Bakery (9,000 ÷ 600). A's price per share is ten times higher, but relative to the profit it earns, Robin Bakery is actually trading at a higher price. The share price divided by EPS like this is .
The numerator is the net income belonging to the parent's shareholders
In Lesson 11 you learned that consolidated financial statements, which combine subsidiaries, split net income into the share of the parent's owners and the share. The numerator of EPS uses only . This is because the share of a subsidiary's other shareholders is not profit on our shares. This rule is also why the controlling-share EPS came out to KRW 630 in the Lesson 11 Robin Coffee scenario. In actual reports as well, the income statement splits the two shares in the 'attribution of net income' line and then lists earnings per share below it.
Quick checkIf Robin Bakery's net income grows to KRW 1.5 billion next year and the share count stays at 2 million, what is EPS? And what is the P/E if the share price stays at KRW 9,000?
STEP 2The denominator of EPS, and P/E
The denominator (number of shares) matters as much as the numerator (net income). What if the share count changes during the year? And which EPS do you use to calculate P/E?
The denominator is the 'weighted average' number of shares
If the number of shares rose or fell during the year, you cannot simply divide by the year-end share count. Net income was earned throughout the year, but newly created shares existed for only part of it. So accounting standards (K-IFRS 1033) require dividing by the , which averages the share count in each period weighted by the length of that period. bought back by the company does not circulate in the market, so it is excluded from this share count.
This is a hypothetical example. Dividing by the year-end count of 2.2 million shares gives KRW 545, and dividing by the beginning-of-year count of 2 million gives KRW 600, but the standard uses the weighted average that reflects the timing (about KRW 571).
Diluted EPS: including shares that may be added later
is calculated using the ordinary shares currently outstanding. But if there are 'potential ordinary shares' that could later become ordinary shares, such as convertible bonds (CBs), warrants, and stock options, the value recalculated assuming all of them became shares is . Diluted EPS is equal to or lower than basic EPS. If the gap between the two is large, it signals a big risk that the share count will grow and your slice will shrink, so check the CB and warrant issuance filings too. You can pre-calculate how much an issue would dilute ownership with the Dilution Calculator.
Share buybacks and cancellations raise EPS
Conversely, if the company buys its own shares on the market and cancels them (), the denominator shrinks. If Robin Bakery cancels 100,000 shares, net income stays at KRW 1.2 billion but EPS rises about 5% to KRW 1.2 billion ÷ 1.9 million shares ≈ KRW 632. It is like a pizza of the same size cut into fewer slices, so each slice is bigger. That is why share cancellation is counted as a form of shareholder return. However, you should also keep in mind that the company's assets and equity shrink by the cash used for the cancellation.
Which EPS is the P/E multiple applied to?
The inverse of PER, 1 ÷ PER, is called the . At a PER of 15x the earnings yield is about 6.7%, meaning you pay a share price of KRW 9,000 to buy KRW 600 of earnings a year. Recall how Economics Lesson 37 compared this number with deposit and government bond yields.
PER comes in two types depending on which EPS goes in the denominator. Calculated with the actual EPS of the past year it is ; calculated with the expected EPS of the coming year it is . If Robin Bakery's expected EPS for next year is KRW 690 (hypothetical), then at the same share price of KRW 9,000 the trailing PER is 15x and the forward PER is about 13x. If you do not check which one a PER in the news or a broker report is, you end up comparing different numbers for the same company.
See it: EPS and P/E calculator
Move net income, share count and share price. Press 'Cancel 100,000 treasury shares' and 'Convert 200,000 CB shares' to see how EPS and P/E change when the denominator changes. The dotted line is the starting state (EPS KRW 600).
This is a calculation for a fictional company. It is simplified by assuming the share count was the same all year, and it does not include the interest-expense savings from CB conversion.
Common misconceptions
- "A stock with a low share price is a cheap stock?"
- No. The share price is just the value of one slice. A stock split cuts the share price sharply, but the company's value and its P/E stay the same. Whether it is expensive is judged by P/E, the price relative to EPS.
- "A low P/E always means undervalued?"
- If one-off gains such as profit from selling land are mixed into EPS, the P/E looks temporarily low (Lesson 15). A company at the peak of its cycle, whose profit looks set to fall next year, will also show a low trailing P/E.
- "EPS went up, so the company earned more?"
- Not necessarily. Even if net income is unchanged, canceling treasury shares raises EPS, and even if net income rises, EPS can fall if a rights offering adds more shares. Check net income and the share count separately.
Quick checkIf all 200,000 CB shares at Robin Bakery turned into shares and the count was 2.2 million for the whole year, what are EPS and P/E (share price KRW 9,000)?
STEP 3Finding EPS in DART and reading P/E
Now it's time to find EPS in a real report. The company calculates EPS itself and puts it at the very bottom of the income statement, so once you know where to look you can read it right away.
Finding it yourself in DART: the bottom line of the income statement
Open again the annual report you looked at in Lesson 3. The screen below is the consolidated income statement from a large listed company's annual report (filed Mar 11, 2025, covering fiscal 2024). It is only an example for finding your way around and is not an investment recommendation.
1234- 1In the table of contents, open III. Financial Matters → 2. Consolidated Financial Statements → 2-2. Consolidated Income Statement.
- 2Check the unit. Amounts are in KRW millions, but the earnings per share line is separately labeled (Unit: KRW).
- 3Under 'Attribution of net income', look at the owners of the parent line. That is the share that forms the numerator of EPS.
- 4The basic earnings per share and diluted earnings per share at the bottom are EPS. This company's basic EPS for 2024 was KRW 4,950.
Source: FSS DART, Samsung Electronics annual report (filed Mar 11, 2025, rcpNo 20250311001085), III-2-2 consolidated income statement screen, captured Oct 8, 2026. This is a navigation example, not a stock recommendation.
If you want to see the denominator, follow the note number beside the income statement line to 'Earnings per share' in the notes to the consolidated financial statements. The notes of the same report set out in a table how KRW 29.5476 trillion of net income attributable to ordinary shares, divided by a weighted average of about 5.97 billion ordinary shares outstanding, gives KRW 4,950. This company also has preferred shares, so it calculates preferred-share EPS (KRW 4,951) separately and states that "there are no dilutive potential ordinary shares, so basic and diluted earnings per share are the same." By contrast, in the same company's Q3 2025 report (filed Nov 14, 2025), cumulative Jan–Sep basic EPS was KRW 3,724 and diluted EPS KRW 3,723, a KRW 1 difference. When the two numbers differ like this, check the notes to see which potential shares have arisen.
Three questions to ask when reading a P/E
First, which EPS is it? Check whether it is trailing or forward, whether it is the parent shareholders' share, and whether one-off gains are mixed in. Second, compared with whom? The 'normal range' of P/E differs by industry, so compare with companies in the same industry or the company's own past P/Es (covered in detail in Part 5). Third, what are interest rates now? As you learned in Economics Lesson 17, when rates are high the market tends to put a lower multiple on the same profit.
How to use it in investing
| When you see numbers like this | Try reading them like this |
|---|---|
| EPS rose but net income is unchanged | Check whether the share count fell, for example through share cancellation, using the weighted average shares in the notes |
| Net income rose but EPS fell | Check whether shares increased through rights offerings or CB conversion. Gauge the scale with the dilution calculator |
| Diluted EPS is noticeably lower than basic EPS | A sign of many potential shares (CBs, warrants, stock options). Check the issuance disclosure and the conversion price |
| P/E is far lower than the industry | First check whether one-off gains are mixed in (Lesson 15) and whether profit is expected to fall because the industry is at its peak |
| Forward P/E is much lower than trailing P/E | It means the market expects profit to grow. Follow up with quarterly results (Lesson 17) to see whether the expectation is right |
Not always. P/E loses meaning when earnings are negative or very small, and for banks and holding companies, given their industry structure, P/B is often used more. This lesson does not recommend buying or selling any particular stock.
Quick checkIf the share price of the company on the screen above were hypothetically KRW 59,400, what would the trailing P/E be based on the 2024 basic EPS of KRW 4,950?
✓What we learned today
- EPS = net income attributable to ordinary shareholders of the parent ÷ weighted average ordinary shares outstanding. For Robin Bakery (fictional), KRW 1.2 billion ÷ 2 million shares = KRW 600.
- The share price is just 'the value of one slice', so whether it is high or low tells you nothing about whether the stock is expensive. Judge that with P/E = share price ÷ EPS. For Robin Bakery, KRW 9,000 ÷ KRW 600 = 15x, and the earnings yield is about 6.7%.
- If the number of shares in the denominator changes, EPS changes too. Share cancellation reduces the share count and raises EPS, while potential shares such as convertible bonds (CBs) and stock options lower diluted EPS.
- Trailing P/E uses the actual EPS of the past year, and forward P/E uses the expected EPS of the coming year. At the same share price, P/E differs depending on which EPS you use.
- In real reports, basic and diluted EPS are on the earnings per share line at the bottom of the income statement, and the numerator (net income) and denominator (weighted average shares) appear in the 'Earnings per share' note.
EPS is the bottom number of a year's report card. But investors don't wait a year; they watch the quarterly results that come out every three months. The next lesson covers whether to compare a quarter with the previous quarter or with the same quarter last year, and how to read seasonality and preliminary earnings.
Quiz5-question quiz
Pick an answer and it's graded right away with an explanation.
Q1. With Robin Bakery's (fictional) net income of KRW 1.2 billion and 2 million shares, what is EPS?
EPS = net income ÷ number of shares = KRW 1.2 billion ÷ 2 million shares = KRW 600. That is, a holder of one share had KRW 600 of profit attributable to them for the year.
Q2. Company A has a share price of KRW 90,000 and EPS of KRW 9,000; Robin Bakery has a share price of KRW 9,000 and EPS of KRW 600. Which trades at the higher price relative to profit?
A's P/E is 10x and Robin Bakery's is 15x. Judge whether it is expensive by the multiple paid on profit (P/E), not by the price of one share.
Q3. For a company with consolidated financial statements, which net income is used as the numerator of EPS?
The share belonging to other shareholders of subsidiaries (non-controlling interest) is not profit on our shares, so it is subtracted. Look at the owners of the parent line under 'Attribution of net income' in the income statement.
Q4. Net income is unchanged, but the company bought back and canceled its own shares. What happens to EPS?
The share count in the denominator falls, so each share's portion grows. If Robin Bakery cancels 100,000 shares, EPS goes from KRW 600 to about KRW 632.
Q5. Which statement about diluted EPS is correct?
Diluted EPS includes in the denominator the shares that could become ordinary shares later, so it is equal to or lower than basic EPS. If the gap is large, look at the risk of your ownership being diluted.
NextTerms · Next lesson · Related tools
Net income ÷ number of shares outstanding. The profit one share earned in a year.
P/EPrice-Earnings RatioShare price ÷ EPS. A multiple showing how many times one year's earnings the market pays for a share. It varies greatly with interest rates and investor sentiment.
Basic EPSBasic EPSNet income attributable to the parent's ordinary shareholders divided by the weighted average ordinary shares outstanding. It is shown on the 'earnings per share' line at the bottom of the income statement.
Diluted EPSDiluted EPSEPS calculated on the assumption that all potential ordinary shares, such as convertible bonds, warrants and stock options, which could later become ordinary shares, have become shares. It is equal to or lower than basic EPS.
Weighted average number of ordinary sharesWeighted average number of ordinary sharesThe average number of ordinary shares outstanding during the year, weighted by the length of time. It is calculated excluding treasury stock and is the denominator of EPS.
Share cancellationShare cancellationThe company eliminates the shares it bought back, reducing the number of shares outstanding. Even with the same net income, the share count falls and EPS rises.
Trailing P/ETrailing P/EThe current share price divided by the actual EPS of the past year (the last four quarters). Distinguish it from forward P/E, which uses expected EPS.
Forward P/EForward P/EThe current share price divided by expected EPS for the next 12 months. It is the multiple the market puts on future profit.
Earnings yieldEarnings yieldEPS divided by the share price, i.e. 1 ÷ P/E. A P/E of 20x means an earnings yield of 5%, used for comparison with Treasury and deposit rates.
Treasury stockTreasury stockThe company's own shares that it has bought and holds. It is recorded as a deduction from equity.
Non-controlling interestNon-controlling interestThe part of equity in a subsidiary that is not attributable to the parent (K-IFRS No. 1110). It is shown separately in consolidated equity and consolidated net income.
Income statementIncome statementA table showing revenue and expenses over a period and the resulting profit. Under K-IFRS, it also includes other comprehensive income and is called the statement of comprehensive income.
Market capitalizationMarket capitalizationStock price × number of shares issued. The price the market puts on the whole company.
Put what you learned to use right away
Rights Issue/CB Dilution Calculator→Learn (Economics) · P/E and P/B: A yardstick for expensive vs cheap→This is educational material and not investment solicitation. There is no guarantee that past relationships will repeat in the future.